BP not ruling out return to reservoir below ill-fated Gulf site

Explorers may go back to Mississippi Canyon Block 252, experts say

By

SteveGelsi

NEW YORK (MarketWatch) -- Now that BP PLC has finally gotten the upper hand on the Macondo well that gushed 4.9 million barrels of oil into the Gulf of Mexico, experts predict the huge amount of oil discovered at the deepwater site will be tapped some day.

That oil will be drawn from the site appears all but inevitable. By whom, though, remains an open question.

Rather than avoiding altogether the site of the worst maritime spill in U.S. history, executives at BP
BP, +0.53%
(BP) may come to realize they have little choice but to revisit the area as the oil major struggles to raise cash with which to pay tens of billions of dollars in clean-up costs as well as prospective fines and lawsuits. At last count, the amount of money spent by the company in response to the spill stood at $6.1 billion. See related story.

BP's current 10-year lease with the U.S. government for Block 252 of Mississippi Canyon, where BP drilled its Macondo well, allows the company to explore for oil and gas there until 2018.

"It seems very obvious that they'd come back," said John Kingston, global director of news for Platts. "It's part of a very intense area for oil exploration. They have a lease, and they know there is oil there. It's also very high-quality oil -- light crude -- which is in tighter supply.

"They will probably come up with a different name for the well other than Macondo," Kingston said, acknowledging the need for the company to try to dissociate itself from the disaster.

BP executives said they've been too busy on engineering new ways to cap and kill the well in ocean water a mile deep -- something that has never been done until now -- to decide what to do about all the oil underneath the ocean floor.

'My feeling is that eventually there will be oil extracted from this reservoir, maybe after a 'cooling off' period of several years.'
Andrew Neff, IHS Energy

Posed this question during an Aug. 6 press conference, BP executive Doug Suttles didn't rule out a return to the deep waters of Mississippi Canyon Block 252 but for now, he said, all the company wants to do is kill the leaky well.

Neither the original well bore of the Macondo well nor the two relief wells being drilled to permanently plug the well would be used as part of any future development of the site, he said.

'We haven't even thought about what we're going to do'

Suttles, the company's chief operating officer for exploration and production, said the reservoir contains substantial oil and gas reserves, adding that BP may have to "think about what to do with that" at some point.

"You can imagine what we've been focused on is the response right now," Suttles said, according to a company transcript. "So we haven't even thought about what we're going to do with this reservoir and this field some day."

Daren Beaudo, a spokesman for BP, said he didn't know if the U.S. is reviewing the terms of the lease and referred questions to the federal Bureau of Ocean Energy Management Regulation and Enforcement.

That's the new name for the agency formerly known as the Mineral Management Service, overhauled by the parent Interior Department in the aftermath of the April 20 explosion and fire on the Deepwater Horizon drilling rig in which 11 workers died. The rig sank two days later.

A spokesman for the Bureau of Ocean Energy Management did not return a phone call or an email about BP's lease at the Mississippi Canyon Block 252.

BP's bid for Block 252 came amid a flurry of deepwater development over the past decade in the Gulf of Mexico, where deeper waters supply a greater and greater portion of oil and gas for the U.S.'s vast energy needs, as wells drilled in shallower waters start to run dry.

One of BP's highest-profile developments, Thunder Horse, created a buzz in the industry with its discovery in 1999 in Mississippi Canyon Blocks 788 and 822. While production has been falling off in recent years, the combined daily output typically ranges from 150,000 barrels to more than 200,000 barrels.

Until the uncontrolled gusher from BP's Macondo well, the record for the largest spill in the Gulf of Mexico had been held by Ixtoc-1 well, the Petroleos Mexicanos property that spewed more than three million barrels into the ocean in 1979-80.

Neff noted that exploration and production in the region of the Ixtoc-1 well, located in the Campeche Sound along Mexico's southeastern coast, has continued. In fact, the Ixtoc-1 well isn't far from the Cantarell field, which ranked as Mexico's largest until recent years.

A spokesperson for Pemex didn't return an email seeking comment on fields near Ixtoc-1.

As for BP's plans for Block 252 of the Mississippi Canyon, Neff said it's too early to say. Anadarko Petroleum Corp.
APC, -3.23%,
which currently holds a 25% share of Block 252, could emerge as a possible operator of a future well in the area, he said.

"My feeling is that eventually there will be oil extracted from this reservoir, maybe after a 'cooling off' period of several years, when the memories of the spill are less raw and the economic impact of the spill has abated somewhat," Neff said. "Whether the oil will be produced by BP or some other company is the salient question."

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